Question

In two paragraphs, explain what the Revaluation Method and Bonus method is.

Answer 1

Both Revaluation method and Bonus Method are the methods used for partnership firms while admitting a new partner.

Under Revaluation method, when a new partner is admitted, first the financial statements are revalued. Means the assets and liabilities are re- evaluated and profit and loss account is also revalued so as to determine correct profit or loss. For this method, a separate Revaluation account is also created. And the balance of it in the last will either be profit or loss,which is distributed among the old partners in their profit sharing ratio.

Under Bonus method, difference between the capital brought by the incoming partner and the book value of that capital brought is compared. If the capital brought is more than its book value, it is called bonus and is distributed among the old partners in their profit sharing ratio. If the capital brought is less than its book value, it is bonus for the new incoming partner and is allocated to new partner's capital account.